Foreign Relations of the United States, 1961–1963, Volume IX, Foreign Economic Policy

164. Summary Minutes of Meeting of the Interdepartmental Committee of Under Secretaries on Foreign Economic Policy⁰

Washington, April 11, 1963.

PROBLEMS OF FOREIGN AID: ALTERNATIVE MEANSOF HELPING NATIONS TO ACHIEVE SELF-RELIANCE

[Here follows Section I, a list of participants (21).]

II. Problems of Foreign Aid: Alternative Means of Helping Nations to Achieve Self-reliance

Under Secretary Harriman, presiding, asked AID Administrator Bell to make whatever statement he wanted before discussion of the paper AID had submitted for the meeting “Some Elements of AID Programs of Particular Relevance to the Interdepartmental Committee of Under Secretaries on Foreign Economic Policy.”¹

Aid Legislation

Mr. Bell reported on the legislation for the mutual assistance programs for 1964. The President’s message and firm recommendations went up April 2² and the House Committee on Foreign Affairs has held four days of open hearings, with Secretaries Rusk and McNamara, Bell, and General Clay as witnesses.³ The Committee will resume on April 23 after the Easter holidays in executive session and hearings will continue until the bill is completed.

Appropriation Request. The President reduced his budget projection for the aid program from $4.945 billion as set forth in the January budget to $4.525 billion. The reduction reflects the recommendations of the Clay Committee and Bell’s own recommendations after sitting with the Clay Committee and reviewing the country programs, as well as the President’s estimate of the likely progress of legislation in the Congress.

When asked by the Committee what his views were on the amount of funds that should be appropriated, General Clay refused to comment in open session. He will be recalled to closed session, and Mr. Bell thought that the General would say $4 billion or thereabouts, or possibly might say a range of $4 billion to $4.2 or $4.3. Mr. Bell thinks we can assume that the House Foreign Affairs Committee will report out a bill authorizing about what the General recommends and that for the remainder of this session of Congress we will be trying to get an appropriation of about that level.

The Clay Committee’s recommendations are essentially to the effect that the foreign aid program should be continued on somewhat sharper lines, that the interests of the US in various countries should be kept more in mind, and that somewhat stronger emphasis be placed on self-help measures. With these objectives, the President, the Secretary, and Mr. Bell have expressed agreement. Mr. Bell is not aware of any substantial differences between the Administration and the Clay Committee although the language of the report may give this impression. In many cases, the report is worded more negatively than conversations of the Committee indicated, especially with respect to India, Indonesia, Africa, and Latin America. AID finds no basic difficulty with the essential thrust of the Clay proposals. The Committee was unhappy over the existence of some of the commitments, such as a costly road in Burma, but it recognized that we must fulfill commitments. The Committee would like to see military aid reduced somewhat more rapidly than Secretary McNamara thinks it can be. This, however, is a difference in timing rather than a difference of attitude.

Classification of Countries. There are no surprises, no unusual recommendations, in our proposals to Congress this year, Mr. Bell said. We are stressing the classification of countries, as reflected on pages 6-7 of the “Proposed Mutual Defense and Assistance Programs—FY1964”.⁴

There are about 30 countries in which there are good prospects for achieving self-sustaining growth. A half dozen of those have reached the point of not needing economic assistance of soft terms. Others—India, Pakistan, Colombia, and Nigeria—have not yet achieved that status but are moving in that direction and are making substantial progress. There are another 12 or 15 countries (Chile and Brazil are examples) which have the potential for moving forward but there is a question whether governmental leadership is strong enough and clearly enough committed to economic programs to anticipate very rapid forward movement. In those cases the programs that go to Congress are essentially on a contingent basis. If these countries move forward, we would be prepared to help; if they do not, we would leave such funds uncommitted.

Mr. Bell said that we do not expect to argue that there is a particular figure for the aid appropriation below which our national interests would be threatened. In Latin America, for example, we are asking for lending authority of $600 million. We will state to the Committee that we are not at all sure we will make loans up to that amount. If the Latin Americans conduct themselves as we would like to see them, there will be very effective uses for the $600 million and that is why we would like to have the authority. We are talking about the power to make loans, not about a specific program of accomplishment on which United States security would stand or fall. That is why Mr. Bell hopes that General Clay will express the need for a range of figures within which we can work.

There is another group of countries which are essentially dominated by short-run external or internal security problems. Korea, Viet Nam, Laos, and Jordan fall into this classification. AID does not claim that these countries are in a position to make steady progress toward economic growth but it hopes they will move into that position in not too long a period. This is not impossible, as we can see in the case of Greece and Turkey.

Finally, there is a third group of countries in which US participation is limited and secondary. Many African countries fall into this class, and a number of Asian countries. We are not in the process of establishing permanent economic programs in these countries. By and large, our aid simply augments that of other major donor countries and in most cases is confined to technical assistance. Sometimes we merely want to establish a US presence. Sometimes our efforts may forestall Bloc enterprises. In other cases, we may be able to acquire strategic facilities.

In our legislative presentation, Mr. Bell said that stress was being given to self-help, the use of private resources (business, unions, cooperatives, farm organizations, etc.), and to increased participation by Western Europe and Japan in aid programs to the less-developed countries.

More Effective Promotion of US Private Investment in LDC’s

Most of the discussion at the meeting centered around the first item posed in the AID paper—more effective promotion of US private investment in the less-developed countries. It was recalled that when this Committee discussed foreign aid two years ago,⁵ three points had been made about the private sector: a) this phase of the aid program should have high priority; b) targets for US investment should be identified in country programs; and c) the need for centralization of this function in the US Government. How much progress had been made on these points?

Importance of the Private Sector. Mr. Bell said there had been a good deal of change in the last two years. There is a substantially increased sense of the importance of using the private sector, although this may not be applied evenly by everyone in the aid business—State, Commerce, AID, and the Missions abroad.

Organizational Arrangements. Also, there is much greater organizational unification than in the past. AID has underway an internal study of the organizational problems. In AID there are four main doors of assistance for American businessmen who want to make investments abroad and who are seeking government help: a) sharing the cost of investment surveys; b) investment guarantees; c) Cooley amendment loans; and d) AID can make dollar loans on such terms and conditions as it considers appropriate. Within AID, these functions are decentralized to the four regional offices on the theory that the Director for the aid program in a region should also be responsible for the private sector operations in that region. Moscoso has a deputy for private enterprise in Latin America. Also, centralized thinking and policy in this field is provided through Seymour Peyser, Assistant Administrator of AID for Private Enterprises.

Private Enterprise Targets in Country Plans. As to identifying targets for private enterprise in country programs, essentially this relates to the attitudes of the various countries and doesn’t yield readily to American initiatives. Where the attitude is skeptical of the good will of American investment, it doesn’t change over night, and we have to keep plugging away. AID would like to see a tailored program for each country and a series of approach actions set up with consideration of priorities. It may be, for example, that we could have spent our time and effort more fruitfully in some countries than in pressing so hard for investment guarantee bilaterals.

The secret to promotion of the private sector is to get it linked to a part of the country plan in which the government has a great interest; unless this is done, the countries don’t regard private investment as a contribution to the plan.

Mr. Bell thought the point of bringing the private sector into development planning was very important, and said that he would check on this.

Development Banks. One mechanism that gets around some of the difficulties in programming for the private sector is the Development Bank, and it was suggested that this be looked into carefully. Use of Development Banks removes from our people the onus and responsibility for direct judgment on particular investments. The difficulty is that Development Banks have a tendency to move only on the cream of the investments and are negative as far as small businesses or risk investments are concerned. There is no realization that a sure-thing approach to lending is not necessarily a good way to move into economic growth.

Commerce Activities. Commerce’s efforts to promote closer working relations between American business communities in the developing countries and the Governments were outlined. These include establishment of investment promotion centers, production centers, and other mechanisms. Commerce has been talking to businessmen and to COMAP and is in hopes that a series of standing committees can be established to work up recommendations on specific problems, such as the use of local currencies, guarantees, aid to exports. The Commerce Department is also in a position to give more technical assistance in helping these countries devise ways to expand their exports.

Multilateral Guarantee. We now have proposed to Congress that there be a new tax incentive for private investment in developing countries, and we have expanded guarantee authority for US investments. A question was asked as whether it wouldn’t be well to have authority for a multilateral guarantee for foreign investments which would show concern for private investors other than Americans. A Treasury official present at the meeting thought the waters might be muddied if this were put forward now as a legislative proposal and that it would be better to try to make progress on movements that are already underway in the OECD on a multilateral guarantee and in the IBRD on arbitration.

European Investment in Latin America. Senator Javits’s idea for getting the Europeans to invest in Latin America was mentioned.⁶ He would like to have Mr. Katz⁷ give six months to this effort. One thing being considered is the establishment of a Committee with well-known names from all over the world. Some concern was expressed that the latter would just result in the cream of the investment being skimmed.

Getting the Private Sector to Come Alive. Mr. Rostow gave some reflections coming out of the talks he had in India.⁸

The whole basis of our aid program is government-to-government, but when that gets the economy moving, the private sector should come alive. We should encourage and help the private sector to expand rapidly as only when a country has its own private sector does it feel able to have private investment from abroad.

India is now trying to increase the investment rate and this means radical expansion of capacity. In some sectors—steel and chemical fertilizers—the Indians have some organizational talent for such expansion. In other fields they don’t have the kind of know-how that it takes for radical expansion of plant—the training of men and programming ahead of materials, orders, etc. These fields are in the private sector, and the Indians are looking for ways to organize technical assistance in the whole process of expanding plant. This probably means bringing in American management know-how on a contract basis. And this relates to getting to know the country’s ambitions or plans for expansion. As other countries progress, we will run into this problem more and more.

Where there are stabilization programs in order to get inflation under control through IMF procedures, we sometimes produce a general deflation in the private sector. This produces some very curious developments which we haven’t thought through. Before a sensible policy is devised, we must have a notion of which private sectors need expansion and we must give more attention to the problem of “marrying” stabilization and development programs.

The most fundamental thing, Mr. Rostow said, is to get movement in the private sector. The second most fundamental thing is to improve the climate for private investment.

Statement of Policy on Private Investment. Asked whether there was a written statement of private investment policy, Mr. Bell doubted that anything exists which deals with the whole problem. AID has a booklet “Memo to Businessmen”, and there is a statement in the AID presentation to Congress. Probably Mr. Peyser’s testimony, in two or three weeks, will be the most comprehensive statement.

More Effective Utilization of All Available Resources in Supplying Technical Assistance Personnel

Turning to the second item in the AID paper, Mr. Bell said that AID has begun to do a better job of working with the agencies in the government and with various elements of the private sector in supplying technical assistance personnel. AID was asked whether this referred to agencies which have traditionally been in the technical assistance field or also encompassed other agencies. Mr. Bell replied that AID is working not only with Agriculture, Labor and Interior but with such agencies as the Home Loan Board. A survey of resources was made by Jack Ohley.⁹ Some representatives present opined that other agencies still aren’t being used enough, such as Labor and Interior.

As far as the tax area is concerned, Treasury had doubts about the US furnishing technical assistance with respect to tax policy as this is a very sensitive area, but can furnish technical assistance for tax administration. Mr. Bell thought there was an understanding that Latin American countries would go to the OAS for technical assistance on tax policy, although they could come to us for tax administration.

The Budget Bureau asked about evaluation of the technical assist-ance rendered. There should be an evaluation of the competence and contribution and whether AID is getting the optimum for the price. Is this evaluation to be done by AID or by the agencies furnishing technical assistance? Mr. Bell said he couldn’t give an answer on this.

Other Donor Countries The DAC Forum

Turning to the question of other donor countries, Mr. Bell said that some progress was made at the last DAC meeting.¹⁰ General agreement was achieved that terms of aid should be adapted more to the balance-of-payments prospects of the countries being assisted, that donors should make their aid available on somewhat more comparable terms, and that the harder lenders should soften their loan terms. While we cannot look for very rapid changes growing out of this, the US will use the agreement as leverage in consortium meetings in the future to try to get the European countries to soften their aid terms.

A real problem about terms of aid will center about the question of supplier credits. The European countries and the US are all becoming more sophisticated and enthusiastic about trying to guarantee or finance their exports. The French are an example. Their foreign aid is very soft—much of it in grants. But then they press ahead on terms like the loan just completed with Mexico, which is really a supplier credit. Mexico is in good shape and can stand it, but lots of other countries can’t. If they sign up for more than they can handle, we may be called upon to bail them out.

As to the quantities of aid from other countries, Mr. Bell said we don’t have so much of a case, especially with the French and not much with the British. We do argue with the Germans that their contribution should be more. Canada and Italy are the worst offenders, and we may get them to do a little more, but not much.

Future Meetings

At the close of the meeting, the Chairman said he thought this group should consider how to mobilize the Departments so as to get the whole Administration effectively behind the foreign aid legislation. Mr. Bell agreed that this should have high priority. It was left that probably the first ten minutes of the next meeting would be devoted to that.¹¹ In the meantime, agencies were asked to give this some thought.

On April 25, the Committee will discuss Export Opportunities for the Manufactured Products of Less Developed Countries, with the State Department taking the lead in the discussion.¹²

On May 9, we plan to discuss United States Interests and Objectives in the United Nations Conference on Trade and Development.

The Chairman asked members of the Committee to consider subjects they would like to have aired in this forum. Suggestions should be sent to him.

C.W. Nichols¹³
Executive Secretary

0. Source: Department of State, E Files: Lot 64 D 452, Economic Affairs (General), Interdepartmental Committee of Under Secretaries on Foreign Economic Policy. Official Use Only. Presumably drafted by Ruth Donahue, who is listed as Recording Secretary, on April 19.
1. Dated April 3; for text, see the Supplement.
2. For text of this special message to Congress, see Public Papers of the Presidents of the United States: John F. Kennedy, 1963, pp. 294-303.
3. This testimony, which took place on April 5, 8, 9, and 10, is in Foreign Assistance Act of 1963: Hearings Before the Committee on Foreign Affairs, House of Representatives, Eighty-eighth Congress, First Session (Washington, 1963), Part 1.
4. This 75-page undated, preliminary report is in Department of State, E Files: Lot 65 D 68,ICFEP, April 11, 1963. The printed version, submitted to Congress in May, is Proposed Mutual Defense and Assistance Programs FY 1964: Summary Presentation to the Congress—Economic: A.I.D., Military: Department of Defense (Washington, 1963).
5. See Document 126.
6. In December 1962, Senator Javits, Chairman of the Economic Committee of the NATO Parliamentarians, successfully urged the NATO Parliamentarians to approve European multilateral funding of foreign assistance to Latin America, supplementary to the Alliance for Progress, with a Latin American equivalent of the OEEC to administer the funds.
7. Presumably S. Stanley Katz, an AID loan officer.
8. Rostow visited India and Pakistan April 1-7.
9. Presumably John H. Ohly (AID). Ohly’s name is not included on the list of participants at the meeting.
10. See Document 157.
11. The minutes of later Committee meetings contain no discussion of the foreign aid legislation.
12. This meeting was postponed until May 23.
13. Printed from a copy that bears this typed signature.